Benchmarking third-party logistics providers using data envelopment analysis: an update

Purpose - The purpose of this paper is to assess the comparative strengths and weaknesses of leading third-party logistics providers (3PLs) in the USA with respect to their financial efficiencies during the period of 2005-2007. It also intends to identify various factors that significantly affect the financial efficiency of the 3PLs over time and propose ways to improve the competitiveness of 3PLs. Design/methodology/approach - This paper proposes data envelopment analysis to measure the financial efficiency of 12 leading 3PLs in the USA, relative to their key competitors. In particular, this paper develops the Charnes, Cooper, and Rhodes (CCR) model that is designed to derive weights without being fixed in advance. It also employes the Banker, Charnes, and Cooper (BCC) model to mitigate the impact of 3PL sizes on the 3PLs' financial efficiency. Findings - The rapid expansion of the business scope can undermine the financial efficiency of 3PLs due to huge start-up investments. In particular, business expansion through mergers and acquisitions can hurt the financial efficiency of 3PLs due to restructuring and re-branding costs. The non-asset based 3PLs have the less financial burden than their asset-based counterparts due to their limited investment in assets. But, the asset-based 3PLs such as J.B. Hunt can still overcome such a burden by streamlining their logistics services and focusing on their niche areas. Research limitations/implications - This paper primarily uses financial measures as the major output. Thus, it can be extended to include some non-financial measures. Owing to the difficulty in finding some secondary data sources about the 3PL industry, only 12 leading 3PLs are compared to each other with respect to their relative financial efficiency. Practical implications - This paper provides several practical guidelines as to how 3PLs can cope with increasing competition, cost pressures, and changing business environments and what the future holds for the maturing 3PL industry. Originality/value - This paper reveals the current weaknesses of the leading 3PLs and identifies challenges and opportunities for the 3PL market in the USA. In addition, it helps 3PLs formulate the future survival and growth strategies by providing the detailed picture of where they stand in terms of competitiveness. In so doing, this paper identifies important sources of 3PLs' financial inefficiencies, while uncovering the secret behind the improvement of their financial efficiencies.